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From demonetisation to GST: 10 major events in the Indian economy in 2016

With so many events happening throughout the year, Indian economy has seen some major ups and downs. From the demonetisation shock to the landmark GST passage, 2016 witnessed it all.

By Diksha Ramesh

Friday, December 30, 2016

With so many events happening throughout the year, Indian economy has seen some major ups and downs. From the demonetisation shock to the landmark GST passage, 2016 witnessed it all.

Here is a list of 10 big events that the Indian economy has seen this year:

1. Demonetisation of Rs 500 and Rs 1,000 notesIn the most surprising and unspeculated move of 2016, Prime Minister Narendra Modi on November 8 announced the decision to withdraw Rs 500 and Rs 1,000 bank notes in a bid to crack down on black money.

The government issued new Rs 500 and introduced Rs 2,000 note as replacement.

In the following weeks RBI introduced several rules in relation to withdrawal limit, deposits and exchange. Countless black money was retrieved, raids were conducted and even national banks were scrutinised.

It has been the boldest reform and the government claims that it definitely will bring long-term benefits at the cost of short-term setbacks.

In a unanimous decision on August 4, 2016, the Rajya Sabha approved the crucial 122nd Constitutional amendment to turn the Goods and Services Tax Bill into a law.

The bill got 203 votes in favour and none against after years of debate and deliberation.

This marked the biggest tax reform in Indian history since Independence as it brought all indirect taxes under one uniform tax system.

Following its passage, the Centre set up a GST Council that focused on other aspects of the tax such as exemptions, threshold, compounding and control. On November 4, the GST Council finally agreed on a multi-layered rate structure as 0 per cent, 5 per cent , 12 per cent, 18 per cent and 28 per cent, a departure from popular international practice of having one rate of tax for all goods and services.

3. Rexit

The departure of the RBI Governor Raghuram Rajan created a buzz in the media with BJP member Subramanian Swamy's tweets only adding to the stir.

In a series of twitter mentions and comments, Swamy said Rajan was "mentally not fully Indian" for his decisions as RBI Governor and that he raised interest rates making it hard for small and medium industries to take loans.

Meanwhile, Raghuram Rajan's Chicago University colleague and co-author, Luigi Zingales said that the Reserve Bank of India Governor was being attacked for "fighting the inefficiency of the banking system" and for taking on the crony capitalists in the country.

However, Rajan broke the news of his leave unconventionally in a letter to the Central bank's employees in advance of the Government's announcement.

5. Monetary Policy CommitteeIn a first, the Government set up a Monetary Policy Committee (MPC), a 6-member panel, to raise transparency in rate-setting decisions of the Central bank by featuring 3 members from the RBI (including the Governor) and three members selected by the Government.

The government's decision to create the MPC was taken because the RBI had to consider multiple factors such as inflation, growth, employment, banking stability and exchange rate stability to make a rate decision.

Moreover, the RBI had to juggle the Government's demand for lower rates and consumer's agitation over high inflation and ended up focusing on different issues at different points of time.

6. Deadline for cleaning up NPAsFormer RBI Governor Raghuram Rajan had taken a tough approach to clean up the bad loans that have plagued the Indian banking sector saying that the Central bank should've carried out this task earlier.

In October, the newly appointed RBI chief Urjit Patel said the RBI would be firm but pragmatic in dealing with bank Non Performing Assets (NPAs) so that the economy does not face lack of credit to support growth.

And thus, the deadline to clean up the banks' balance sheets is March 2017.

In October, the Government launched its UDAN scheme, acronym for Ude Desh Ka Aam Naagrik, that will make flying affordable for common man.

The Indian Railways led by Minister Suresh Prabhu also undertook major makeovers to enhance passenger experience and provide innovative facilities for better travel.

Indian Railways have already conducted trial runs of the super-fast Talgo train to save on travel time and solar-powered coaches under its go green initiative are just to name a few.

Deen Dayalu, a 2016 budget proposal by Suresh Prabhu offers non-AC coaches for unreserved class of passengers with facilities like water filters, bio-toilets, dust bins and anti-theft arrangements. Tejas express, Gatimaan express, Mahamana express are other super fast trains that have been introduced.8. Rupee plunges to a new low

On November 24, the Indian rupee fell to a fresh life-time low of 68.86 against the dollar over sustained foreign capital outflows.

With expectations of protectionist policies by President-elect Donald Trump, US bond yields began rising that fuelled a rally in the US greenback. This had urged investors to withdraw from emerging markets like India towards the US dollar.

9. Budget merger The government also decided that Union Budget will be presented on the first working day of February next year in a departure from the colonial practice of being presented on the last working day of February.

Additionally, the Government will not present a separate railway budget but will in fact include it in the main budget, ending a 92-year-old British-era practice.

10. Fastest growing economy tag

In February 2016, India overtook China as the fastest growing major economy in the world amid a failing global economy. In May, India's GDP grew 7.5 per cent year-on-year between January and March, faster than the previous quarter's 7.3 per cent.

In June, India's GDP grew further to 7.6 per cent, retaining the fastest growing economy title. In the following months even as India's GDP dipped to 7.1 per cent it still managed to stay ahead of China's 6.7 per cent growth.